Home sales platform Zillow shed more than a quarter of its market value Wednesday as a downturn in the housing market weighs on the company's core services and drags profits lower.

The 26-percent plunge sent Zillow to a new 52-week low and made for the stock's worst day of trading since going public in 2011.

Zillow missed Wall Street estimates for third-quarter revenue, posting $343 million compared with the $344 million analysts had predicted. It also guided toward lighter fourth-quarter results, expecting revenue between $340 million and $357 million, well below the $368 million Wall Street had been expecting.

Zillow lowered its full-year revenue guidance for the second quarter in a row, to a new range of $1.31 billion to $1.32 billion, from a previously adjusted range of $1.32 billion to $1.35 billion.

Core business stumbles

Earlier this year, Zillow launched a new strategy of buying and selling homes directly to users, expanding its offerings beyond real estate brokers. The company in August bought a mortgage lender to assist with sales.

The new business segment appears to be taking off, posting quarterly revenue of $11 million, compared with company expectations of between $2 million and $7 million.

"The negative feedback received over the past several months has been far greater than the company had anticipated. Management found many Premier Agents were displeased with the lower lead volume, despite leads being higher quality," analysts for Stifel wrote in a note.

Zillow plans to adjust the new system, but risks to the broader housing market could still weigh on transaction leads.

Last week, total mortgage applications dropped to a 4-year low, according to the Mortgage Bankers Association's seasonally adjusted index, as the average contract interest rate hit an 8-year high.

"People aren't shopping for homes because they become less affordable as rates rise," trader Jon Najarian, of the Najarian Family Office, told CNBC on Wednesday. "What [the Federal Reserve and Chairman Jerome Powell] meant to do, slowing down the growth of the economy, they have accomplished. And now if they keep basically putting their foot on the brake, they're going to hurt it."

— CNBC's Michael Sheetz and Diana Olick contributed to this report.

Correction: An earlier version of this story mistakenly calculated Zillow's new business in billions of dollars instead of millions.